Walt Custer’s Annual Update from productronica 2017

Industry consultant Walt Custer of Custer Consulting sat down with me at productronica 2017 to once again inform our readers with his yearly update and perspective on what’s happening in the industry. And guess what? It’s good news! Pertinent charts referenced in our conversation are included, but if you want more, Walt invites you to click the link at the end of this conversation and email him directly.

Patty Goldman: Walt, it is good to see you at productronica. How are you doing and how’s the show?

Walt Custer: I'm doing fine. The show is very upbeat. It's busy, and everybody is in a good mood; I think that reflects business conditions. As I look around the world, virtually all areas are growing again. The leading indicators are up, and electronic equipment growth is good, and I think everybody is reflecting a little better times.

Goldman: That's all good news.

Custer: It is. I always try to give both sides of current business conditions , but this year things are mostly good, probably the best in four or five years .

Goldman: Did you anticipate this?

Custer: Slightly. I won't take credit for it, but the leading indicators have been up for six to nine months. And the future looks good. By industry, printed wiring boards aren't growing as much as, say, semiconductors, but I think some of the semiconductor growth may be some double ordering, and inventory building. I have a chart which shows growth by sector of the global electronicsupply chain. Electronic equipment is up this quarter by about 4.5%, but semiconductors are growing at 22%. That growth imbalance worries me (Figure 1).

Goldman: That doesn't sound right, does it?

Custer: No, semiconductor growth seems excessive based on end-market demand. Part of this imbalance is because memory chips are now much more expensive (Figure 2). They were in short supply, so prices were raised. But I also sense there may be some double ordering going on that would boost that growth rate, which means there will be a downward correction at some point in time. Semiconductor capital equipment is booming too. It's up about 28% in the third quarter. Almost all the end markets for electronic equipment are up.

Goldman: Well, let me ask you this. I keep hearing about shortages in the copper foil supply, the resin supply, and even the glass fabric supply. Our industry is pretty picky, and other industries are not as picky and have better pricing. What do you see coming with regard to that?

Custer: I think that was a big issue, but right now the industry is taking a little relaxation period because we're very seasonal, driven by consumer goods, like computers, and cellphones. From a seasonal point of view, we peak in November, and then we slow down for about three months. So that will take some of the pressure off supply that we’ve felt through the busy season. Companies are trying to add capacity to copper foil, but you can't do it overnight. I understand that's a 12- or 18-month cycle or so.

Goldman: I believe it has to do with how long it takes to build the drums that are used to electrodeposit the copper foil.

Custer: So yes, that was a big problem. I looked at some data on Taiwan and China for printed wiring board and laminate monthly sales. For a while, a few months ago, laminate sales were going up much more than printed wiring boards, which indicated there were price increases. But in the last month, they dropped down on the trend line with printed wiring boards, so that suggests to me that the strong price pressure on laminates has eased a little bit over the last couple of months. We’ve finished the busy season for this year, and we're going into the Christmas and first quarter downturn, so my guess is that that the shortages will ease a bit short term.

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There has been a considerable amount of (electronic) ink and words shared in our industry bemoaning the graying-out of our industry and the growing shortage of skilled people at all levels. (See the May 2017 PCB007 Magazine column “Help Wanted—and How!” for just one example). As is usually the case, though, when all is said and done, more has been said than done.

At the 2018 electronica exhibition in Munich, Frando van der Pas, director of marketing and sales for MacDermid Enthone—Europe, and Technical Editor Pete Starkey discussed the consolidation benefits and the vision and future of the company.

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Walt Custer’s Annual Update from productronica 2017

Industry consultant Walt Custer of Custer Consulting sat down with me at productronica 2017 to once again inform our readers with his yearly update and perspective on what’s happening in the industry. And guess what? It’s good news! Pertinent charts referenced in our conversation are included, but if you want more, Walt invites you to click the link at the end of this conversation and email him directly.

Patty Goldman: Walt, it is good to see you at productronica. How are you doing and how’s the show?

Walt Custer: I'm doing fine. The show is very upbeat. It's busy, and everybody is in a good mood; I think that reflects business conditions.As I look around the world, virtually all areas are growing again. The leading indicators are up, and electronic equipment growth is good, and I think everybody is reflecting a little better times.

Goldman: That's all good news.

Custer: It is. I always try to give both sides of current business conditions , but this year things are mostly good, probably the best in four or five years .

Goldman: Did you anticipate this?

Custer: Slightly. I won't take credit for it, but the leading indicators have been up for six to nine months.And the future looks good. By industry, printed wiring boards aren't growing as much as, say, semiconductors, but I think some of the semiconductor growth may be some double ordering, and inventory building. I have a chart which shows growth by sector of the global electronicsupply chain. Electronic equipment is up this quarter by about 4.5%, but semiconductors are growing at 22%. That growth imbalance worries me (Figure 1).

Goldman: That doesn't sound right, does it?

Custer: No, semiconductor growth seems excessive based on end-market demand. Part of this imbalance is because memory chips are now much more expensive (Figure 2). They were in short supply, so prices were raised. But I also sense there may be some double ordering going on that would boost that growth rate, which means there will be a downward correction at some point in time. Semiconductor capital equipment is booming too. It's up about 28% in the third quarter. Almost all the end markets for electronic equipment are up.

Goldman: Well, let me ask you this. I keep hearing about shortages in the copper foil supply, the resin supply, and even the glass fabric supply. Our industry is pretty picky, and other industries are not as picky and have better pricing. What do you see coming with regard to that?

Custer: I think that was a big issue, but right now the industry is taking a little relaxation period because we're very seasonal, driven by consumer goods, like computers, and cellphones. From a seasonal point of view, we peak in November, and then we slow down for about three months. So that will take some of the pressure off supply that we’ve felt through the busy season. Companies are trying to add capacity to copper foil, but you can't do it overnight. I understand that's a 12- or 18-month cycle or so.

Goldman: I believe it has to do with how long it takes to build the drums that are used to electrodeposit the copper foil.

Custer: So yes, that was a big problem. I looked at some data on Taiwan and China for printed wiring board and laminate monthly sales. For a while, a few months ago, laminate sales were going up much more than printed wiring boards, which indicated there were price increases. But in the last month, they dropped down on the trend line with printed wiring boards, so that suggests to me that the strong price pressure on laminates has eased a little bit over the last couple of months. We’ve finished the busy season for this year, and we're going into the Christmas and first quarter downturn, so my guess is that that the shortages will ease a bit short term.

Goldman: Then do you think the reverse will happen in a few more months as long as there are lithium batteries to compete with?

Custer: Foil suppliersare obviously working on capacity and but besides PCB demand there is competition from another less price and quality demanding industry, so it's still a problem.

Goldman: Not only at a better price, but less stringent requirements, so it's an easier market. We're a pretty demanding industry and price-sensitive too.

Custer: In any case, the data shows that there might be a little bit of a relaxation of the prices for now.But we'll see how it plays out.

Goldman: What else do you see coming?

Custer: The thing that's interesting is to look at what are the next big markets? Personal computers have matured and cellphones are on the verge of maturing. Even though we get an iPhone 10 and the like, those markets are no longer growing at 50% or 100% a year. So you start looking at self-driving cars, 5G, medical electronics and things like that. I think robotics is certainly a growth area, and a lot of the assembly that comes back to the U.S. will be done robotically. 5G cellular has to emerge in a big way to support self-driving cars, in my opinion. I think that's going to be the next big market, and it's going to happen over the next couple of years.

Goldman: 5G in combination with automotive?

Custer: Yes. It's supportive of automotive. With the Internet of Things, everything’s connected, and it has to be connected very fast. So I think that will be our next big area to watch.

Goldman: Where do you see medical electronics fall—a distant second or a close second?

Custer: It's hard for me to assess medical electronics. I think we're going to see more remote medical electronics with 5G. You may have a surgeon in the U.K. operating on you robotically while you are in the USA.

Goldman: That's interesting.

Custer: You can make a whole list of things that are next generation, but 5G is worth watching.

Goldman: Do you have any feel for how long things will continue in an upward mode?

Custer: They are still going up, but the rate of growth is peaking. I would say in this third quarter, we may have seen peak growth for the current semiconductor business cycle (Figure 3) and in addition then note that the annual autumn consumer electronics-driven busy season has ended. That doesn't mean that electronics demand is going to go down, but the rate of growth will be tempered until late spring.

The leading indicators are still positive, and we'll watch those for the next couple of months, so watch the Purchasing Managers' Index (Figure 4). But to answer your question, I think we will still be growing but at a slower pace. But you will always want to be looking at timely data.

Goldman: We like this low, steady growth as opposed to the wild swings, right?

Custer: Yeah. It wouldn't plunge as much but there are other areas, like both semiconductor capital equipment (Figure 5) and PCB process equipment that were at 25–30% growth rates. People either need the equipment or they don't. Then, if suddenly things begin slowing down, those orders can be shut down very quickly.

Goldman: People decide things are growing, so they buy equipment, and then they get it and they are done buying for a while.

Custer: And they want to get in line because they've got to wait a while to get whatever they want. So they place the orders. I'm still a firm believer in watching the really time-sensitive data to see if it changes. So far, it hasn't changed. It's peaked, but it hasn't gone down. We'll keep an eye on it for the next couple of months.

Goldman: That's good to hear.

Custer: If any of your readers want a copy of the presentation I gave at productronica, send an email to walt@custerconsulting.com. It looks at both the world market and the European market.